March 2015

03/18/2015

This just in: a federal court in Seattle has denied the International Franchise Association's request to enjoin the portions of Seattle's minimum wage law that discriminate against franchisees. The IFA "asked the court to enjoin the city from treating franchisees as large, national companies rather than the small, locally-owned businesses that they are."

I've talked about Seattle's discriminatory minimum wage law a number of times on this blog. Wile I don't oppose a minimum wage increase, the increase should be fair and should apply evenly across the board, to everyone. Treating franchisees in the same category as large businesses is just factually and legally incorrect. The court's refusal to enjoin the law is disappointing and may lead to the closure of a many franchisee-owned small businesses in the city.

According to the IFA, the decision, while disappointing, is not the end of the fight.

03/17/2015

The top stories in the franchise world continue to be about efforts by the cities of Seattle, Chicago, and others in raising the minimum wage with laws that discriminate against small business owners who own franchises. For the full story, see some of my previous blog posts on the issue. These laws are a serious concern for franchisees and franchisors alike.

In brief, these laws (which are written substantially the same way in the different cities that have adopted them) require small businesses to raise the minimum wage of their workers from the current level to $15 an hour. Under these new ordinances, businesses with more than 500 employees have 3 to 4 years to increase the minimum wage to the new $15/hour level, while "small businesses," defined as businesses with fewer than 500 employees, have up to 7 years to reach the new level.

The problem? For the purpose of calculating the "500 employees" number, all franchises in the same system are counted together. The net result of this is that these locally-owned small businesses with a few employees, which also happen to be franchises, are being discriminated against as compared to their non-franchised counterparts.

After reading some of my blog posts on the subject, another franchise attorney (one who exclusively represents franchisees) commented to me that these laws, which treat franchises differently than similarly situated non-franchise small businesses, could arguably be viewed as "industry specific" laws for the purposes of Item 1 of a franchisor's Franchise Disclosure Document (FDD). I can see the argument on both sides of that point.

The Federal Trade Commission's (FTC) Franchise Rule requires a franchisor to state in Item 1 of its FDD "any laws or regulations specific to the industry in which the franchise business operates." The FTC has elaborated on this requirement by saying that laws applying to all businesses generally do not need to be disclosed; instead, "only laws that pertain solely and directly to the industry in which the franchised business is a part must be disclosed in Item 1."

The minimum wage laws adopted by some cities like Seattle target franchises by treating them differently from other similarly-situated small businesses; laws that are specific to a certain "industry" are the types of laws that need to be disclosed in Item 1.

So, the question then becomes: is franchising as a whole an "industry?" Are these the types of laws the FTC was contemplating when creating the Item 1 disclosure requirement? Should Item 1 of a franchisor's FDD should disclose these laws?

03/09/2015

The International Franchise Association's (IFA) third annual California "Franchising Day" is set for March 11, 2015. The goal of Franchising Day is to inform California legislators about some of the key issues affecting the franchise industry. This year, the IFA's Franchising Day will "feature meetings with legislators and staff, allowing members of the franchise community to meet directly with lawmakers to discuss the benefits of franchising in California, as well as the legislative issues facing their businesses."

One of the key legislative issues facing franchisors in California is the state's law on negotiated franchise sales. As described in my previous posts here and here, the law -- intended to help California franchisees to give them an advantage during negotiations with their franchisors -- actually hurts franchisees in the state because many franchisors would rather refuse to negotiate completely than comply with the law, which franchisors view as burdensome. If you are attending Franchising Day, this law should be an important topic of discussion.

If you are interested in attending Franchising Day, the IFA has asked you to e-mail Erica Farage at efarage@franchise.org.

Matthew Kreutzer is a Partner at Howard & Howard Attorneys and serves as Chair of the firm's Franchising, Distribution, and Antitrust Practice Group. Mr. Kreutzer, who is based in the firm's Las Vegas office, is a Certified Specialist in Franchise and Distribution Law by the State Bar of California's Board of Legal Specialization.

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This blog is dedicated to advancing the franchising industry through the sharing of business, legal, and practical information and ideas. This blog is a service of Howard & Howard's Franchising, Distribution, and Antitrust Practice Group.